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Gas and Geopolitics: Prospects for Russia

Sameer Jafri
November 20, 2011

A pipeline transporting Russian natural gas.

Although petroleum is the primary fuel all over the world, natural gas is becoming increasingly competitive because it is abundant, cheaper, cleaner and more fuel-efficient. In possession of the world's largest gas reserves, Russia is the largest producer and exporter of natural gas. Russian gas constitutes more than a quarter of natural gas consumed by the European Union, which provides Russia a certain degree of leverage to exercise its influence over Europe. Russia's bilateral ties with transit nations like Ukraine and Baltic states also play a determining factor in the continuity of gas supplies to Europe. The Russia-Ukraine gas dispute in early 2009 very well exposed the vulnerability of Europe to resultant disruptions.

The Nord Stream natural-gas pipeline, the first leg of which was commissioned recently, is expected to partly allay the European fears of cutoff since it will deliver gas directly from Vyborg, Russia, to Greifswald, Germany, running underneath the Baltic Sea, thus bypassing transit nations and hence evading potential diplomatic attrition. Moreover, the savings from transit fees will add to economies of scale for both sides. While the EU has a reason for contentment owing to assured gas supplies from Nord Stream, for Russia it will not only bring additional revenue, but also take away a bargaining chip from its neighbors who time and again threaten to disrupt supplies.

Even though the West is backing the proposed Nabucco gas pipeline, connecting Turkey to Austria, in an effort to reduce European dependence on Russian gas, serious doubts remain on its political feasibility and economic viability, owing to its diverse gas sources such as Iraq, Azerbaijan and Turkmenistan, which are fragile regions. Moreover, the pipeline is planned to pass through restive areas of the South Caucasus and Eastern Turkey. Therefore, security is a major hurdle circumscribing the prospects of this project.

To further undermine Nabucco's prospects, Russia, along with Italy, has launched a rival South Stream pipeline project. It will transport Russian natural gas via the Black Sea to Bulgaria and further to Greece, Italy and Austria. The project, executed jointly by Russian giant Gazprom and Italy's Eni, is expected to be running by 2015, much before the proposed commissioning of Nabucco in 2017. Even if completed in time, Nabucco will be able to feed only a limited number of European countries. Hence, both Nord Stream and South Stream combined are bound to make Russia the undisputed energy feeder to Europe, making it capable of enjoying an unprecedented influence over the continent at a time when all of its major economies are reeling under serious debt crises.

To quote Russian President Dmitry Medvedev during the launch of Nord Stream, "It marks a significant step in relations between Russia, the E.U., Germany and a number of other countries that participated in the project. In the long run, it will bolster security in Europe, including in the energy sector, particularly amid the current economic difficulties."

Expanding the scope of its energy diplomacy of late, Russia has tried to diversify its gas exports by finding new customers. In this attempt, a pipeline has already been laid to China. Another project, Altai gas pipeline, is on the cards. In addition, Russia has proposed to lay a pipeline to the Koreas, in an effort to reduce tensions on the Korean peninsula and give a boost to the impoverished North Korean economy. Plans are also underway to take supplies to maritime neighbor Japan as well as to Southeast Asia. The Eastern Siberia-Pacific Ocean oil pipeline is already pumping Russian crude to Japan, China and Korea. Since Asian economies' appetite for energy is huge, this diversification of supplies to Asia-Pacific will ensure guaranteed demand for Russian gas. It will also enable Moscow to have a greater say in the affairs of the region.

This is an opportune moment for Russia. By wisely and judiciously making use of its geography, it can establish itself as a strong pole in the emerging global order.

Sameer Jafri is a political analyst based in India. He writes on global, geopolitical, economic and environmental issues. He can be reached at sameer.jf@gmail.com.